If a company cannot pay its debts, a creditor can apply to court to close or 'wind up' the company. However, companies in financial distress as a result of the pandemic have been protected from creditor action since June 2020, through the Corporate Insolvency and Governance Act 2020. This was to ensure that viable businesses affected by the restrictions on trading during the lockdown periods were not forced into insolvency unnecessarily.
The government has announced that as the economy returns to normal trading conditions, the restrictions on creditor actions will be lifted. New measures will be in force from 1 October 2021 to 31 March 2022 to help smaller companies get back on their feet and give them more time to trade their way back to financial health before creditors can take action to wind them up.
Creditors can present winding up petitions during this period but there are extra conditions that must be complied with:
- the creditor must be owed £10,000 or more before the petition can be brought; and
- the creditor must seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action.
The limit of £10,000 will protect businesses from creditors insisting on the repayment of relatively small debts.
In relation to rent and commercial property, businesses should pay contractual rents where they are able to do so. However, the existing restrictions will remain on commercial landlords from presenting winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.
Continuing the restriction on winding up (in respect of commercial rent only) supports the announcement on 16 June 2021 that commercial tenants will continue to be protected from eviction until 31 March 2022 whilst the government implements a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic.
Creditors and companies should be aware of these changes and should take specialist advice if they are owed money or receive a demand for payment.
To discuss this or any other company/commercial matter, please contact us.